Electronic trading system supporting anonymous negotiation and indications of interest

ABSTRACT

A system conducts anonymous negotiations and supports indications of interest in trading stock. The system includes a database for storing public orders received from a public stock trading system; and a server for receiving hidden orders from a plurality of users and for conducting anonymous negotiations between first and second users with the hidden orders. The server repeatedly accesses the database to determine a match of any one of the hidden orders with any one of the public orders, and to execute a pair of orders selected from the hidden orders and the public orders. The system also transmits indications of interest (IOI) into a trading environment using the server for processing a trading order from a first user and for maintaining a profile of a user. The profile includes a current IOI setting for controlling transmission of the IOI from the user. The server responds to a toggle command from the first user to control transmission of the IOI opposite to the current IOI setting. The server responds to the IOI setting being set to allow transmission by transmitting the IOI of the first user associated with the trading order.

This application is a continuation of application Ser. No. 09/412,408filed on Oct. 5, 1999 now U.S. Pat. No. 7,475,046.

COPYRIGHT NOTICE

A portion of the disclosure of this patent document contains materialwhich is subject to copyright protection. The copyright owner has noobjection to the facsimile reproduction by anyone of the patent documentor the patent disclosure, as it appears in the U.S. Patent and TrademarkOffice patent files or records, but otherwise reserves all copyrightwhatsoever.

BACKGROUND OF THE INVENTION

The present invention relates to electronic trading systems, and, moreparticularly, to a system and method which acts as an introducing brokerto arrange electronic trades in financial instruments.

Alternative trading systems are being implemented with capabilitiesbeyond the traditional exchanges for commodities, stocks, and financialinstruments. For example, electronic trading systems can performtrade-matching between buyers and sellers, which increases thecommunications and liquidity of capital for greater market efficiencies.

In the financial arts, electronic communications networks (ECNs) referto computerized trade-matching systems which are capable of uniting thebest bid and offer prices, as well as providing investors with anonymityand reduced transaction costs. For example, such ECNs may bypassbroker-dealer commissions as well as exchange fees. An ECN allows itsparticipants such as brokers/dealers, market makers, and buy-sideinstitutions to post bids and offers into a market quote, such as the“NATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATIONS”(NASDAQ) system.

Order handling rules have been implemented by the Securities andExchange Commission (SEC), which mandate disclosure by market makers ofany ECN order in a trade quote at the time of the trade. The lack ofanonymity may expose, for example, excessive trades by specificinstitutions and companies which may, in turn, have a negative impact onthe markets, such as causing runs in stocks and wild and volatile swingsin markets. Accordingly, such exposure may chill trading by marketmakers of ECN orders, and so reduces liquidity and efficiency in tradingsystems.

A need exists for an anonymous trading system which complies withapplicable market disclosure rules.

Trading systems also support messaging and displayed information asindications of interest (IOI) of an entity willing to enter into a tradeand soliciting opposite parties or contras in a trade. Anonymousindications increase trading liquidity. However, on occasion brokers useIOIs, and especially anonymous IOIs, to perform fishing; that is, tosend empty or insincere IOIs to solicit half of a transaction, and thento seek to fill the other half.

A need exists for a trading system which promotes IOIs and theirbenefits but which discourages fishing IOIs.

OBJECTS AND SUMMARY OF THE INVENTION

Objects of this invention are to fill the needs described above.

These and other objects are achieved in accordance with the invention byan electronic trading system and method which support anonymousnegotiation complying with order-handling rules, and which supportindications of interest (IOI) while discouraging fishing IOIs.

In accordance with one embodiment of the invention, stocks areelectronically traded using an electronic trading system whilesupporting anonymous negotiation and maintaining the identity of thetrading parties anonymous with respect to each other and with respect tousers of the trading system. In this embodiment, trades may be executedbetween two users of the system (between hidden orders) and between auser of the system and a third party (between a hidden order and apublic order).

In accordance with this embodiment, a first party offers to buy or sellover the system a number of shares of stock selected by the first partyat a price selected by the first party from or to one or morecounterparties selected by the first party. In the preferred embodiment,anonymous negotiations may be conducted between a first party and aplurality of prospective counterparties (second users) selected by thefirst party. The first party and a counterparty electronically agree totrade up to an agreed number of shares of the stock at an agreed price.However, if there is no better trade in at least one stock orderoriginating from outside the system for the particular stock for eitherthe first party or the counterparty, the system electronically executesthe trade agreed to by the first party and the counterparty, otherwisethe system executes the better trade. A trade may be executed where thenumber of shares on the buy side of an order is less than on the sellside, with the system executing a trade for the number of shares on thebuy side.

The first party offering to buy shares from or sell shares to one ormore selected counterparties selects the one or more counterparties fromthe users identified by the system as engaging in recent trade or orderactivity in particular stocks. User stations may be provided having aninput device and an output device, and available anonymous negotiationpartners may be selected by a user from a list provided by the systemusing an input device. The first party and the counterpartyelectronically negotiate the price of the stock or the number of sharesof the stock, or both, over the system prior to agreeing to the trade,and whether there is a better trade in the particular stock for eitherthe first party or the counterparty is determined at least once duringthe negotiating step and at least once after completion of thenegotiating step and before any trade is executed between the firstparty and the counterparty. Preferably this is determined repeatedlyduring the course of a negotiation.

Thus, a trade is not executed between users of the system if there is abetter trade with a third party. Whether a better trade is available,i.e., whether there is a match of any one of the hidden orders with anyone of the public orders, may be repeatedly determined. Depending uponwhether a better trade is available, a pair of orders selected from thehidden orders and the public orders is executed. A trade is executed inaccordance with a priority when the same trade becomes available betweentwo orders originating within the system and an order originating fromwithin the system and an order originating from outside the system. Inthe preferred embodiment, priority of trade execution is given to ordersoriginating within the system.

In accordance with another embodiment of the invention, interest may bedetermined in a stock among users of an electronic stock trading systemonly in association with an order entered by a user. In this embodiment,the electronic trading system comprises at least one computer withassociated computer memory and a plurality of user stations coupledthereto via a communications network. The at least one computer isprogrammed to match orders entered into the user stations by users andto execute trades of matched orders, and has a listing of system usersaccessible by any system user via a user station. Responsive to userinput via user stations, the at least one computer is programmed tocreate a subset or profile of system users selected by a user to whichthat user authorizes the system to transmit an indication of interest(IOI) in a stock for which that user has entered an order. A user at auser station selects users from the list of users, and the systemtransmits the IOI to the selected users only when the user enters anorder at the user station for the particular stock. Thus, in thisembodiment, an indication of interest (IOI) is transmitted only inassociation with an order entered by a user.

The IOI may be transmitted automatically in association with the orderunless overridden by a command entered with the order, or pursuant onlyto a command entered with the order. The transmit or override command ispreferably entered via a keyboard in the user station. Preferably, anIOI will be transmitted in association with an order only if the orderexceeds a threshold quantity, or if that order and any uncancelledorders for the same stock entered by the same user exceed a thresholdquantity.

The trading system includes a database for storing public ordersreceived from a public stock trading system; and a server for receivinghidden orders from a plurality of users and for conducting anonymousnegotiations between first and second users with the hidden orders. Theserver repeatedly accesses the database to determine a match of any oneof the hidden orders with any one of the public orders, and to execute apair of orders selected from the hidden orders and the public orders.The system also transmits indications of interest into a tradingenvironment using the server for processing a trading order from a firstuser and for maintaining a profile of a user. The profile includes acurrent IOI setting for controlling transmission of the IOI from theuser. The server responds to a toggle command from the first user tocontrol transmission of the IOI opposite to the current IOI setting. Theserver responds to the IOI setting being set to allow transmission bytransmitting the IOI of the first user associated with the tradingorder.

BRIEF DESCRIPTION OF THE DRAWINGS

FIG. 1 illustrates the disclosed trading system;

FIG. 2 illustrates the system of FIG. 1 in greater detail with modulesused for negotiated trades;

FIG. 3 illustrates the system of FIG. 1 in greater detail with modulesused for processing indications of interest;

FIG. 4 illustrates a flowchart for performing negotiated trades;

FIG. 5 illustrates a flowchart for processing indications of interest;

FIG. 6 illustrates a screen display of a TRADEBOOK quote monitor;

FIG. 7 illustrates a screen display showing stock price status;

FIG. 8 illustrates a screen display of available trades for negotiation;

FIG. 9 illustrates a screen display of FIG. 8 with trades selected fornegotiation;

FIG. 10 illustrates a pop-up window for setting negotiation terms;

FIG. 11 illustrates a screen display of a TRADEBOOK negotiationsmonitor;

FIG. 12 illustrates the screen display of FIG. 11 with additional tradesand their status;

FIG. 13 illustrates a pop-up window for accepting or declining anegotiated trade;

FIG. 14 illustrates the screen display of FIG. 12 with additional tradesand their status as expired;

FIG. 15 illustrates a screen display for viewing the settings of auser's profile;

FIG. 16 illustrates the screen display of FIG. 15 with a pop-up windowfor changing a setting of a user profile;

FIG. 17 illustrates a screen display of multiple trades;

FIG. 18 illustrates a screen display of a log of daily trading activity;and

FIG. 19 illustrates a screen display of posted indications of interest.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENT

Referring to FIG. 1, the disclosed trading system 10 includes a“TRADEBOOK” server 12 executing the “TRADEBOOK” software available from“BLOOMBERG TRADEBOOK LLC” to receive trading information from aplurality of users using the user stations 14-16 through a gateway 18and a communications network 20, which may be, for example, an intranet,or a public services telephone network (PSTN). Alternatively, thecommunications network 20 may be the Internet. In addition to thegateway 18, the system 10 and/or the communications network 20 in anyembodiment may provide appropriate data security; for example, usingencryption and firewalls.

The server 12 displays information on stocks and other securities to theusers through the monitors 22-24, and the users may enter selections andcommands such as buy and offer messages using the data inputs 26-28,which may be input devices which may include a keyboard, a mouse, orother input devices such as a graphic user interface (GUI).

The server 12 includes a processor 30 for executing the “TRADEBOOK”software to conduct trading with anonymous negotiation and indicationsof interest features as described herein, such that the system 10 actsas an introducing broker to arrange transactions with the “NASDAQ”trading system 32 and/or the “AUTEX” system 34. The “TRADEBOOK” softwaremay be stored in the memory 36 and is capable of acting as an agent forboth sides of each trade, with fees charged to both participants andnon-participants of the system 10 on a per-transaction-basis. Thesecurities which may be traded on the system 10 may include NASDAQ,NASDAQ Small Cap, and exchange-listed U.S. equity securities, as well asAmerican Depository Receipts (ADRs), such as pink sheet and bulletinboard types of securities which are eligible for continuous netsettlement by book entry through the National Securities ClearingCorporation and the Depository Trust Company.

In an alternative embodiment, the system 10 may include an indication ofinterest (IOI) server 38, shown in FIG. 1, for processing IOIs throughthe TRADEBOOK server 12, as described herein, to provide IOIfunctionality to the “BLOOMBERG TRADEBOOK” system 10 and to usersthereof.

Referring to FIG. 2, the TRADEBOOK server 12 includes various modules,which may be hardware and/or software, for processing TRADEBOOK ordersand data and for interfacing the users 40 using the user stations 14-16to the NASDAQ trading system 32 as well as to other systems such as aclient's open market system (OMS) 42. The modules may be referenced withfile names and/or designations beginning, for example, with “BT” for“BLOOMBERG TRADEBOOK”.

User inputs and data from the uses 40 and user stations 14-16 areprocessed in real-time using the processor 30 executing the BTBIG module44 and the BT2LINE module 46, which receive and format the input datafor orders and messages for use by the TRADEBOOK server 12. Data to bedisplayed back to the user 40 is sent to the BTMON module 46, which is amonitoring module for translating information to the format used byBTBOOK 54 and for sending output data to the monitors 22-24 and forcontrolling the data displayed on the monitors 22-24 of the userstations 14-16, respectively. The monitors 22-24 provide outputs torespective users through portions 50 of the screen, with the BTBIGmodule 44 for processing data from the lower portion of the screen, andthe BT2LINE module 46 for handling and displaying the data from thefirst two lines in the upper portion of the screen, shown in FIG. 6.

FIG. 6 illustrates a typical “BLOOMBERG TRADEBOOK” screen display foruse by traders to efficiently and quickly provide a significant amountof up-to-date information upon entry of simple commands. In addition,the activation of commands and the display of additional information isalso provided by using a GUI with GUI-based input devices such as amouse. For example, text, numbers, and regions of the screen may beactive for actuation by the user. In one example, double-clicking thestock name “INTC” may generate a chart of activity of prices of the“INTEL CORPORATION” stock. In another example, double-clicking a mouseover the market maker name “BTRD” may generate information about themarket maker, such as the full name and contact information, in which“BTRD” corresponds to “BLOOMBERG TRADEBOOK” as the source of the 62.5bid for 70,000 shares of INTC shown in FIG. 6.

The particular example screen shown in FIG. 6 is a TRADEBOOK quotemonitor screen which is generated by the trader entering the commandBTMQ which may stand for “BLOOMBERG TRADEBOOK” market (or monitor)quote, with the command mnemonic “BTMQ” which generated the presentscreen in FIG. 6 being displayed, for example, in the upper right cornerof the screen of FIG. 6. Other types of screens may be provided to usersof “BLOOMBERG TRADEBOOK”, such as screens showing order tickets, orderblotters, monitoring of a single security, monitoring of a composite orset of securities in one's portfolio or field of trading, and multiplebuy and sell orders in the same security.

Referring to FIG. 2, the BT2LINE module 46 of the system 10 displaysinput commands back to the user. For example, to buy 10,000 shares of“INTEL CORPORATION” shares having the trading symbol INTC at $62 pershare, a user 40 may input the command line:<BUY>INTC 10000 62 <GO>through the data input 26. The keywords <BUY> and <GO> may be input astext, or may be predetermined hotkeys or function keys or combinationsthereof on a standard keyboard, or alternatively may be specialized keyson a customized keyboard available, for example, through “BLOOMBERG LP”.For example, the <GO> command may be the traditional ENTER or RETURNkey, or may be a customized keyboard button with the word “GO” imprintedas indicia thereupon. The indicated command line is processed by BT2LINE46, which in turn is processed by BTMON 48 to display the command on atool line, for example, at the top of a predetermined displayed screenthrough the monitor 22 as shown in the example screen shown in FIG. 6.

Any input commands such as orders corresponding to negotiations betweentraders are processed through a BTNEGOT module 52 which processes thenegotiation messages as described herein in conjunction with FIG. 4.BTNEGOT 52 consults a book of trades processed by the BTBOOK module 54and stored in the memory 34, which may be a database such as theBTRADE-DB 56, which is accessible by the BTBOOK module 54. ThroughBTBOOK 54, the book in BTRADE-DB 56 is updated to reflect orders,current prices, and data available from the NASDAQ trading system 32, aswell as cancellations of orders and logs of activity. In particular, theBTBOOK module 54 is operatively connected to the NASDAQ trading system32 through a BTFEED module 58, which feeds data such as order and quotedata from NASDAQ 32. In addition, the BTBOOK module 54 is connected tothe SELECTNET system of NASDAQ 32 through a “BLOOMBERG TRADEBOOK” NASDAQWORKSTATION (BTNWS) computer-computer interface (CCI) 60, which connectsBTBOOK 54 to SELECTNET to receive and transmit orders.

BTBOOK 54 also receives order and trading data from the client OMS 42through a BTFIXCCI module 62 and a BTFIXSRV module 64, which arerespectively a financial information exchange (FIX) CCI application anda FIX receiver application for feeding financial data to BTBOOK 54. Inparticular, the BTFIXCCI module 62 translates and/or formats thereceived financial data to a format for use by BTBOOK 54. The BTFIXSRVmodule 64 acts as a local node for the TRADEBOOK server 12 foridentification of the server 12 with other systems and components.

Since trades may also be associated with indicators of interest (IOI),BTBOOK 54 may optionally be connected to a BTIOI module 66 forprocessing IOIs in conjunction with trades with anonymous negotiationsthrough BTNEGOT 52. The BTIOI module 66 may be connected to the IOIserver 38 shown in FIG. 1.

In an alternative embodiment shown in FIG. 3, the TRADEBOOK server 12may support IOIs associated with trades executed without anonymousnegotiations. For example, the BTIOI module 66 may be connected to theIOI server 38 through the BTFIXSRV module 64 of the TRADEBOOK server 12and also to the AUTEX automatic trade execution system 34. The IOIserver 38 may be connected to the user 40 through the communicationsnetwork 20 and to the TRADEBOOK server 12 through various modules. Forexample, the IOI server 38 may include a corresponding BTFIXSRV 70 whichinterfaces with the BTFIXSRV 64 to access and to post IOIs to the AUTEXsystem 34.

A corresponding BTFIXSRV module 68 connects the IOI server 38 toexternal systems such as the TRADEBOOK server 12, and so the BTFIXSRVmodule 68 identifies the IOI server 68 to such external systems. TheBTFIXSRV modules 64, 68 may be identical in implementation. The IOIserver 38 of “BLOOMBERG TRADEBOOK” (BTRD) includes a decoder (BTRDDCD)module 70 which performs auto-execution of the IOI software to takemessages received through the BTFIXSRV module 68 and to translate suchmessages into a format for use by the IOISERV module 72 to process theIOIs.

The IOISERV module 72 also posts the IOIs for display with associateddata to the monitor of the user 40 through an equity order monitor(EOMON) module 76 separate from the monitor module BTMON 52 of theTRADEBOOK server 12. In particular, the EOMON module 76 may beconfigured to filter IOIs according to the settings of each particularuser, for example, to prevent the display of certain brokers.

At the request of the user, the IOISERV module 72 also causes thedisplay of all IOIs. In addition, the BTMON module 48 operates with theIOISERV module 72 to determine and to display, for each particular user,the most recent IOIs involving the particular user, such as the two mostrecent IOIs sent by the user.

Anonymous Negotiations

In operation, as shown in FIG. 4, the system 10 supports negotiationfeatures, which allow broker-dealers and institutional participants toinitiate anonymous negotiations on a one-on-one basis with otherparticipants of the system 10. A participant may designate whether ornot to receive negotiation messages, and may initiate a negotiation withanother participant having an open order, an expired order, or anexecuted trade on the system 10. Such negotiations may be performed inconjunction with the indications of interest (IOI) feature of the system10, as described herein.

When a trader enters an order, the processor 30 of the TRADEBOOK server12 using, for example, BTBIG 44, checks the book of orders in BTBOOK 54reflecting NASDAQ orders for a match to the trader's order. If no matchexists, anonymous negotiations may occur, as shown in step 78 of FIG. 4,with the book being checked constantly and/or regularly for a match withthe negotiated orders.

By entering a “BTP” command, a trader is then presented with a BTP stockprice status screen shown in FIG. 7, which lists for the indicatedstock, such as INTC for “INTEL CORPORATION”, the most recent activity ofthe stock such as orders for selling and buying in screen portions116-118, respectively. If the trader viewing the status screen of FIG. 7wishes to negotiate to buy or sell an unmatched order, the trader mayselect and actuate the commands “NEGOTIATE TO SELL” or “NEGOTIATE TOBUY”, at screen portions 120-122, respectively. For example, the trader,as the first participant of the negotiation, may use a predeterminedfunction key, or may actuate, through a GUI, the text at portions120-122.

For example, for negotiating to buy the INTC stock, activation of text122 causes BTNEGOT 52 to generate the Negotiate-to-Buy screen shown inFIG. 8 for display on the respective one of the monitors 22-24associated with the first participant. The Negotiate-to-Buy screen maydisplay the total shares bought that day by the first participant, andthe quantity of shares of the first participant displayed to others.

On the screen shown in FIG. 8, the most recent trading activity oforders for the stock, for example, INTC, is displayed with the date,quantity, and price. The first participant may select one or more of theorders to engage in negotiations, for example, by actuating the emptybox icons 124 through a GUI. The empty boxes are then changed to filledor X-ed boxes 126 as shown in FIG. 9. The first participant may selectany number of available orders for negotiation, or alternatively only apredetermined number of orders may be selected, such as eight or ten.

During negotiation, a participant enters a firm negotiation order instep 80 of FIG. 4, which is an order which results in a trade ifaccepted by the recipient of the negotiation message. To enter thenegotiation order, for example, for a negotiation to buy, the system 10generates a pop-up window 128 or sub-screen, such as shown in FIG. 10,for inputting a negotiation price as well as limits to exposure of thefirst participant in the negotiations. For example, as shown in FIG. 10,Participant A sends a negotiation message to sell 50,000 shares of adesignated security at, for example, $84.25 per share to Participant Band other participants who entered the sale orders in FIG. 9. Throughthe pop-up window 128 of FIG. 10, the first participant may limithis/her trading exposure to 60,000 shares. A second participant such asParticipant B may then conduct anonymous negotiations with the firstparticipant using firm acceptances or counter-offers in step 82 of FIG.4.

Once negotiations have begun, the first participant who initiated thenegotiation may view the action on the negotiation through anegotiations monitor screen shown in FIG. 11. As responses from otherparticipants provide counter-offers or acceptances, such action is alsothen displayed on the negotiations monitor screen of the firstparticipant shown in FIG. 12. The first participant may then selectwhich counter-offer or acceptance to accept or decline by actuation ofthe respective text in FIG. 12 using a GUI. For example, when the firstparticipant double-clicks a mouse when a cursor is positioned overaction number 1 of FIG. 12 with an offer for 3000 shares at a price of77 from a second participant, a pop-up window 130 is generated as shownin FIG. 13. Using the window 130 in FIG. 13, the first participant canaccept or decline the offer of 3000 shares at 77, and the negotiation inthat instance is then complete. If the negotiation is accepted on bothsides, then the order is executed automatically unless there is a matchwith the book of public orders.

As shown in FIG. 14, the various orders may have time limitations formatching, negotiation and/or acceptance. Accordingly, stale negotiationsmay be cancelled as expired, as in action items 3-4 in FIG. 14. Thefirst participant may re-initiate negotiations on different terms, suchas the more favorable prices of 77 per share as shown in action item 1in FIG. 14.

In the described example with Participant A, if Participant B respondsto the negotiation message to buy only 20,000 shares of the offeredsecurity at the offered price, the server 12 matches the two orders instep 84 of FIG. 4, and a trade for the 20,000 shares is executed withoutfurther action by either participant if no match is in the book as persteps 86-90.

Alternatively, if Participant B responds to the negotiation message witha counter-offer in step 82 instead of communicating an acceptance, thecounter-offer may also to be a firm offer, and may propose a differentquantity and/or a different price per share for the same security. Inother alternative embodiments, the offers, acceptances, andcounter-offers may not be firm and so may be subject to confirmation bythe last accepting party.

All negotiation initiators and counter-offerors may be required to enterand accept firm quantities and firm prices to ensure that theparticipants conduct good-faith negotiations and so to preventparticipants from testing the waters; for example, by sending insincerenegotiation bids or offers, or even counter-offers, and then backing outof the trade if the contra-side participant communicates an acceptance.

A negotiation order may be all-or-none as to terms, may specify aminimum which is to be taken, or may state that the initiator of thenegotiation is open to a counter-offer with a quantity of a differentsize. The system 10 may also support the use of reserves for trading;for example, if Participant A's negotiation order is over apredetermined threshold, such as 10,000 shares, Participant A maydesignate a reserve, which is not displayed to Participant B whoreceived the negotiation message. During negotiation in whichParticipant A sends an order with a displayed quantity and anon-displayed reserve quantity, if Participant B responds with acounter-offer indicating a match on price but with a quantity which isgreater than the displayed quantity yet within the total reserve amount,then the reserve of Participant A is automatically drawn to allow thetrade to go forward to meet the quantity of the counter-offer.

However, using reserves, if the counter-offer quantity exceeds thereserve quantity, the counter-offer is executed up to the amount of thereserve, unless the counter-offer is specified by Participant B as beingall-or-none. In an all-or-none situation, execution does not occurwithout a subsequent communication from Participant A of an increase inthe offered display quantity or of an increase in the reserve quantity.

When a trader sets a cap for his/her exposure, such as 10,000 sharessplit among multiple parties in negotiation, the system 10 ensures thatthe cap is not exceeded during negotiation by hidden messages and duringtrading with the public trades in the book. In particular, the caps areenforced by determining when the cap is met or would be exceeded byadditional trades, and then by canceling all outstanding hidden messagesreflecting orders which exceed or would exceed the cap.

Negotiation orders are independent of other displayed orders on thesystem 10 unless the negotiation process is complete. When a negotiationorder is initially entered by Participant A using, for example, userstation 14 of FIG. 1 through a data input device 26, the displayedportion of the negotiation order is only displayed to the participantdesignated by the initiator of a trade, but the negotiated order iscapable of interacting with publicly displayed orders, for example,during matching, when such orders are at the same price.

For example, if the best displayed bid in the system 10 is at 84.25 andthe negotiation bid is entered at 84.375, a subsequent offer enteredinto the system 10 by the participant at 84.375 automatically hits the84.375 negotiation bid, up to the full amount of the negotiationquantity and reserve. Such matching and hitting of bids occurs even foranonymous and/or invisible bids.

For example, although the negotiation bid in the above example is notdisplayed to the participant as part of the anonymous negotiationmethod, the negotiation bid is still able to be matched with the 84.375offer.

The negotiation feature using anonymous bids and offers is intended tocomply with the ECN Alternative for alternative trading systemsspecified in Order Execution Rules of the Securities and ExchangeCommission (SEC), which do not require an order in an alternativetrading system to be displayed publicly if the order is shown only toone other person or entity. For example, the Exchange Act Release No.40760 of Dec. 8, 1998, published at 63 Federal Register 70844 on Dec.22, 1998, states after note 190 that “alternative trading systems arenot required to provide the public quote stream orders displayed to onlyone other alternative trading system subscriber, such as through the useof a negotiation feature”. The system 10 using the “TRADEBOOK” server 12executing the “TRADEBOOK” software available from “BLOOMBERG TRADEBOOKLLC” may be used as or in conjunction with an alternative trading systemfor allowing users to negotiate orders for the “NASDAQ” trading system32.

Accordingly, while negotiations occur anonymously using hidden orders insteps 78-84 shown in FIG. 4 after no initial match of booked publicorders, orders may enter the book during the anonymous negotiations.While the anonymous negotiations occurs, the system 10 continues toconsult the book of public trades in step 86 for a match of a publictrade with either side of the anonymously negotiated trade. In step 88,the system 10 determines if there is a match of one party in theanonymous trade with the book 36. If not, for example, if the companystock or the type of company stock of the negotiated trade differ fromevery entry in the book 36, then no match with the book 36 exists and sothe negotiated trade is executed in step 90.

However, if there is a matching trade in step 88, the system 10determines if the prices of the book trade and the negotiated trade areidentical in step 92. If not, the trade having the better price isexecuted in step 94. For example, Participant A is interested in buying10,000 shares of INTEL at 62, and has negotiated with Participant B tobuy the shares of INTEL at 64. After negotiations are finalized, if anorder in the book 36 is present from Participant C to sell 10,000 sharesof INTEL at 63, then from the perspective of Participant A, ParticipantC has the lower and therefore better price of 63 per share instead of 64per share from Participant B. Accordingly, despite negotiations withParticipant B, a trade between Participants A and C is executed at thebetter price of 63.

After anonymous negotiations, the terms of the trade may be identical toa later book entry, including identical in price. Therefore, in step 92,the prices are identical, but the negotiated trade takes precedence sothe system 10 executes the negotiated trade at the negotiated price 96.In this matter, the system 10 maintains price/time priority, in whichthe best price governs the trade and, if prices are identical, thenegotiated trade is deemed to have time priority over a later-receivedtrade in the book 36. Accordingly, traders having identical trades withlater book trades are not penalized for entering into negotiations.

Any parties rejected during negotiation may later propose new trades andso may enter into the final trade outside of negotiation as per steps86-96. For example, Participant A selects Participants B and C foranonymous negotiation, but finalizes an anonymously negotiated tradewith Participant B. Participant C is thus rejected during negotiation,but may re-enter a trade in the book 36. During steps 86-88, despite thenegotiation between Participants A and B, the negotiated trade iscompared to the publicly booked trade of Participant C. If Participant Ccan beat the price of Participant B in step 92, then Participant C mayenter into the final trade with Participant A at the better price.

Accordingly, trading and liquidity are improved by the system 10 usinganonymous negotiations which comply with appropriate regulatory marketrules for improved prices and market efficiency.

Indications of Interest

Referring to FIG. 3, the system 10 also supports the use of anindications feature which allows only certain participants (e.g.,institutional participants) to advertise a desire to negotiate bysending indication of interest (IOI) messages to other institutionalparticipants via IOI software applications or services. Such indicationsmay specify only the security ticker and the side of the indication asbeing for a buy or a sell, and may also include a notation that thesecurity is negotiable on the system 10. Indications may be set to notshow any price, size, or identification of the participant.

The system 10 maintains user profiles to control the transmission ofIOIs, with a default setting permitting transmission by any particularuser. These profiles are in effect subsets of system users to which auser wants IOIs to be transmitted by the system. A user accesses a listof users from which the user creates the profile. In the preferredembodiment, the system 10 also supports the use of IOIs only betweeninstitutional traders and not from individual brokers, in order toreduce or eliminate “fishing” for interest. The user profile may specifywhether or not the user is an institution. The user profile may bemodified by the user to change the IOI default setting, but may not bemodified by the user to change the user's designation of being or notbeing an institutional trader.

As shown in FIG. 5, the system 10 uses the components and modules ofFIGS. 1 and 3 to perform the steps 98-114. Upon receiving an order forstock in step 98 from an initiator of the trade, the system 10 checksthe user profile of the initiator in step 100 to determine the presentvalue of the IOI setting, which may be the default value or a customizedsetting. If the IOI setting is determined in step 102 as being set totransmit an IOI with the trade, then the method proceeds to step 104.

Otherwise, the system 10 determines in step 106 whether the initiatorhas entered an toggle command to override the current IOI setting in theinitiator's profile. For example, when entering an order in the toolline 50 of FIG. 6, the initiator may include a “/N” command, such thatthe order shown in FIG. 6 instead reads:<BUY>INTC 10000 62/N <GO>which toggles the system 10 to use, for this trade only, the exactopposite of the IOI setting in the initiator's profile. The “N” in the“/N” command represents NATURAL Institution-to-Institution-OnlyIndications of Interest. Accordingly, the initiator of orders need notcontinuously reset the IOI setting in the user's profile to transmitIOIs. It is understood that other commands, function keys, or hotkeysmay be used to toggle the initiator's profile settings.

If no toggle command is present and the IOI setting is set to nottransmit an IOI message as determined in steps 102 and 106, then thesystem 10 in step 108 does not send an IOI message. However, in step106, if a toggle command is present in step 106 to use the opposite ofthe IOI setting to not transmit as determined in step 102, then thesystem proceeds to step 104.

In step 104, the system 10 may optionally determine if the initiator isan institutional trader, for example, by checking the profile of theinitiator which may include a designation or flag indicating whether ornot the initiator is an institutional trader. If the initiator is not aninstitutional trader, then the system 10 performs step 108 to not sendthe IOI message, since such IOI functionality is reserved forinstitutional traders to prevent fishing for trades, as describedherein.

However, in step 104, if the initiator is an institutional trader, thenthe system 10 determines if a combined quantity of the stock from alluncancelled orders for the stock exceeds a predetermined threshold instep 110. For example, the system 10 may support IOIs which involve acombined total of, for example, 10,000 shares of a given stock, in orderto ensure that enough overall interest is present for seriousinstitutional traders to enter into trades of the stock.

If the predetermined threshold is not met in step 110, the system 10holds the IOI message in step 112 for every initiator and returns tostep 98 to receive more orders for the stock. Otherwise, in step 110,with the predetermined threshold met, the system 10 sends the IOImessage associated with the order or orders of the particular stock instep 114.

As shown in FIG. 15, the system 10 responds to a command from a user todisplay a screen on the respective monitor 22-24 of the user for viewingthe settings of a user's profile, such as the setting for sending outIOIs. Using a mouse and GUI as the data inputs 26-28 for moving a cursorto the “Y” in a field adjacent to the “SEND IOIs” setting, oralternatively using highlighted portions of the screen of FIG. 12 with acursor moved by tabs or other keystrokes through a keyboard, a user canselect the field and so to cause the system 10 to generate achange-of-setting pop-up window or menu 132, as shown in FIG. 16. Oncethe user inputs a new setting, the change of setting is confirmed by theuser using, for example, the GO key and/or other predetermined keys orkeystrokes, which causes the updated setting to be stored with othersettings in the memory 36. Thereafter, the system 10 responds to theupdated IOI setting as the current IOI setting.

By entering a “BTP” command, a trader is then presented with a BTP stockprice status screen shown in FIG. 17, which lists for the indicatedstock the most recent activity of the stock such as orders for sellingand buying in screen portions 116-118, respectively, as well as bestbids and best offers in screen portions 134. Upon entering apredetermined command such as BTRN, the trader is then presented with anaudit trail screen as shown in FIG. 18, in which any activitycorresponding to the text at the screen portions 134 in FIG. 17 areindicated, for example, in text messages 136 shown in FIG. 18. Inparticular, any IOIs associated with the orders in FIG. 17 aredisplayed.

In response to an IOI display command from a trader, such as IIA<GO>,the system 10 displays all IOI messages on an IOI screen shown in FIG.19, with the IOI in FIG. 18 associated with the buy order of 68.5 pershare in FIG. 17 being shown in more detail as the IOI 138 in FIG. 19.

Unlike traditional broker-dealer IOIs in the prior art, the disclosedIOIs are fully executable and associated with the actual order. The IOIsare anonymous, and may be sent for both listed and over-the-counterstocks and only to institutions over both the “BLOOMBERG LP” and AUTEXsystems. In one embodiment of the disclosed system 10 using theTRADEBOOK server 12 and applications, the only permissible way to enterand send an IOI is by entering an order to be associated with the IOI inthe TRADEBOOK system. Accordingly, any user of the system 10 seeing anIOI knows that there is a real TRADEBOOK order attached to the IOI, andso the IOI is not being used for fishing for orders and trades.

Such IOI functionality may only be available to the buy-side, so onlythe buy-side has the ability to view brokers' IOIs. Using commandsassociated with TRADEBOOK such as broker:BTRD, users are allowed to viewthe available and posted IOIs, and so users of the system 10 may engagein trades using IOIs with confidence that the initiator is not fishingand wasting the users' time. Thus the IOIs represent real liquiditywhich is immediately executable.

The disclosed trading system 10 and method have been described by way ofthe preferred embodiment. However, numerous modifications andsubstitutions may be made without departing from the spirit of theinvention. For example, while the preferred embodiment discusses tradescomplying with NASDAQ trading rules, it is wholly within the purview ofthe invention to contemplate negotiation and processing of trades underdifferent market rules to ensure anonymity yet comply with the marketrules in the manner as set forth above. Accordingly, the invention hasbeen described by way of illustration rather than limitation.

The invention claimed is:
 1. An electronic trading system comprising: atleast one processor, with associated memory, which communicates with aplurality of user stations via a communications network, the memorystoring executable instructions that when executed cause the at leastone processor to perform processes comprising: receiving over thenetwork from user stations hidden orders in at least one stock for whicha trade can be executed without negotiation; creating a subset of systemusers to which the system is to transmit an indication of interest (IOI)associated with a received hidden order for a stock; transmitting, touser stations of the users in the subset of users, the IOI associatedwith the received hidden order for the stock; determining a match of areceived hidden order with another order for the stock; and executingwithout negotiation a trade of the orders for the stock matched in theprevious step.
 2. The system of claim 1 wherein the at least onecomputer is programmed to automatically transmit an IOI associated witha received hidden order.
 3. The system of claim 1 wherein the at leastone computer is programmed to transmit an IOI associated with a receivedhidden order only when a command is received by the system from the userstation from which the associated hidden order was received.
 4. Thesystem of claim 1 wherein the at least one computer is programmed toautomatically transmit an IOI associated with a received hidden orderunless an override command is received by the system from the userstation from which the associated hidden order was received.
 5. Thesystem of claim 1 wherein the at least one computer is programmed totransmit an IOI associated with a received hidden order only if theassociated hidden order exceeds a threshold quantity.
 6. The system ofclaim 1 wherein the at least one computer is programmed to transmit anIOI associated with a received hidden order only if the associatedhidden order and any uncancelled orders for the same stock received fromthe user station from which the associated hidden order was receivedexceed a threshold quantity.
 7. A method of trading in a stock amongusers of an electronic trading system which includes at least onecomputer that receives orders from user stations, the method comprising:receiving by the at least one computer over the network from userstations hidden orders in the stock for which a trade can be executedwithout negotiation; creating by the at least one computer a subset ofsystem users to which the system is to transmit an indication ofinterest (IOI) associated with a received hidden order for the stock;transmitting by the at least one computer, to user stations of the usersin the subset of users, the IOI associated with the received hiddenorder for the stock; determining by the at least one computer a match ofa received hidden order with another order for the stock; and executingby the at least one computer without negotiation a trade of the ordersfor the stock matched in the previous step.
 8. The method of claim 7wherein transmitting an IOI associated with a received hidden ordercomprises the at least one computer automatically transmitting the IOI.9. The method of claim 7 wherein transmitting an IOI associated with areceived hidden order comprises the at least one computer transmittingthe IOI only when a command is received by the at least one computerfrom the user station from which the associated hidden order wasreceived.
 10. The method of claim 7 wherein transmitting an IOIassociated with a received hidden order comprises the at least onecomputer automatically transmitting the IOI unless an override commandis received by the at least one computer from the user station fromwhich the associated hidden order was received.